Are You Financially Prepared to Start a Business?
As counter-intuitive as it may seem, a higher percentage of people today are more likely to start their own business compared to January 2020 based on a Small Business Startup Sentiment Index.
If you’re among this group of entrepreneurial wannabes, one of your initial steps in franchise ownership evaluation is to review your finances.
While calculating the amount of money you can bring to the table is important, there are other financial matters you need to address.
Eight Factors Determining Financial Readiness for Franchise Ownership
According to Al Lesko, consultant at FundMyFranchise, here are eight key factors in making yourself financially ready to purchase a franchise.
Prepare your financial paperwork for a franchisor.
Organize your most recent bank, savings, stock and 401K statements as well mortgage, credit card and other loan information. Franchisors will be asking for this information in detail, and not providing it is a red flag and delays the process of your finding that great franchise business.
In addition, consider investing a little more effort in preparing paperwork for a business loan even if you feel like you won’t need it. With lending paperwork completed, you’ll have quick availability to more funding options should you discover that your personal financial situation falls short of needed dollars.
Obtain your credit reports from Experian, Equifax, and TransUnion.
You can go online at AnnualCreditReport.com and obtain free reports from all three credit bureaus. After you receive your credit reports, review them for errors.
If you find information that is incorrect or shouldn’t be on the report, contact the business that issued the account or the credit reporting company that issued the report. You can go to the Consumer Financial Protection Bureau to learn more about common credit report errors and how to correct them.
Reduce your credit card debt.
Most franchisors and banks want to see credit card balances lower than 35% of credit card limits. The lower the better.
Pay your bills on time.
Besides showing that you understand and adhere to fiscal responsibility, paying your bills on time helps you avoid late fees as well as the negative effect late payments have on your credit score.
Don’t apply for new credit or loans.
Incurring additional debt in the process of buying a franchise will reduce your creditworthiness and reduce your chances of business ownership.
Update your resume.
You’ll need to provide a description of your skills and experience based on previous employment. Tailor your resume to fit the type of work you’ll perform as the franchise owner. If you lack needed job functions, be prepared to describe the skills and experience you’ll be seeking from others when you hire.
Create a business plan.
When you’ve narrowed down your focus to one or two franchises, even a short, quick business plan will show that you’re thinking about how to make your business a success.
Franchisors and lenders will need a document or presentation showing solid business forecasts, industry experience, managerial skills, and operational approach. Most franchisors can help you with business plan development based on their template. It’s never too early to ask for that template since it will help you with questions you may need answered by the franchisor or other current franchisees.
Work with a reputable funding source when seeking loans.
Since each bank is different, work with someone who knows loan options at various banks, who has a relationship with bank officers, and who can help you prepare your loan application for your best chance of acceptance.
How COVID-19 Has Impacted Funding and Franchise Selection
Due to the COVID-19 virus, banks are more likely to have higher financial hurdles for franchises in industries likely to have the longest recovery period after current economic conditions have stabilized. Franchises, however, with a good reputation, a number of successful units, and a track record of sustainability will likely notice little difference in how they’re viewed since the virus outbreak, especially franchises that withstood prior recessions.
Work with a Franchise Consultant to Find the Right Franchise
With thousands of franchise business choices, people are naturally concerned about making the wrong choice and losing their investment. With Franchise Business Source’ franchise search advisory services, we present you with brands in a streamlined process that fit your financial and personal requirements so you can confidently evaluate and envision your business success.
To discuss franchise ownership, call me, Patrick Rozmus, at 917-935-2557 or click HERE to schedule a call. Like executive recruiters who are compensated by their client companies for finding employees, franchise consultants are compensated by franchisors for finding entrepreneurs like you. Your only investment with me, a Registered Franchise Consultant, is your time.